Mar 31, 2008

Online Channel Strategy Tightens Scope

As the Internet distribution era matures, there is growing recognition that much of the web-based go-to-market battle is being fought now in a realm less lofty than 'fundamental industry reinvention'. The battle is being fought instead today over new ways to optimize individual channel flows.

These flows are the heart and soul of any distribution system, and represent the collection of individual activities (and costs!) that all the myriad players in the system - across product manufacturing, logistics, wholesaling, and retailing - invest in to create the final experience for the end customer.

Here's a few recent examples of how the scope of once-sweeping Internet strategic predictions is tightening to a more rigorous system-based view of distribution improvement:

In a review of how the Virgin Megastore in Times Square is evolving as a retailer of entertainment offerings, David Carr of NYT writes about hybrid marketing channels - different combinations of in-person and web-based retailing infrastructure - and describes how retailers are struggling to find the optimal approach to consumers' needs for selection, review, browsing and immediate availability. He comments specifically on struggles to find the right business model around Physical Distribution flows: (are) looking at a wasting asset. The need to hold media that
you consume — the physical purchase — is going away...the Web is not competition for traditional media, but a completely different system that empowers both
groups and individuals, a place where choice is not only an option, but an
imperative. In that world, the idea that someone would buy a physical
object that contained a finite number of songs arbitrarily selected by someone
else seems quaint...changing the equation isn’t so much a matter of throwing out
old media as adjusting to hybrid models that enable an infinite inventory on a
digital shelf — embracing, rather than trying to control, choice...

And Ben Charney of WSJ discussed the Selection and Promotion flows, perhaps the trickiest ones with web retailing. While the web certainly makes product suppliers breath easier around managing the inventory implications of burgeoning, almost limitless selection breadth, the right model for consumers is proving evasive. At the end of day, the average consumer simply does not want to trade one level of efficiency (broad selection at low cost) for another (time-consuming an risky - therefore 'costly' - search and selection).

Sometimes turning online shoppers into buyers takes a personal
touch...Shopping online can feel overwhelming, with some Web sites listing
thousands of products to choose from...Online DVD-rental company Netflix Inc.
has been flooded with thousands of responses to its offer of $1 million to
anyone who can raise the accuracy of its recommendations by 10%. But it is
finding that such a substantial improvement can still be a challenge...
Finally, Robin Sidel of WSJ writes an article that discusses how Payment Flows are also in flux. The piece discusses why American Express is dropping its 'fob' program; the highly-touted new payment approach by which consumers carry a small plastic fob on their key chain that is designed to make the retail payment process faster and easier for them.

But Amex and others' experiences reinforce how tricky it can be to decipher consumers' channel needs and successfully navigate consumer's trade-offs between 'experience' and 'efficiency'. He comments how 'key chain fob' payment experiments have flopped as consumers remained loyal to traditional wallet cards:

" appears consumers may not be wowed by the devices as much as the card
companies had hoped. In abandoning the fob, AmEx plans to focus on its
traditional cards -- installing computer chips in them that allow customers to
hold the card up to an electronic reader instead of swiping it through a device.
'We have actually found that our customers prefer to use the contactless
technology through our traditional cards' rather than the key fob, said Richard
Flynn, a senior vice president who oversees "cardless" payments at AmEx"
In the end, David Carr's piece asks a compelling strategic question around the Physical Distribution flow that forward-looking marketing executives now realize they must ask for each go-to-market activity. The question points to the need for go-to-market strategy analysis that peels the onion back and digs into the nuances of distribution systems on a flow-by-flow basis:

What would happen to a Barnes & Noble that only had one copy of every book, but could print it on the spot and give it to you? ...the consumers would get their choice and you’d get rid of all the inventory needs, the upstream and downstream waste, and you might be able to turn that sampling into a sales opportunity.

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